Fortress funds achieve strong results in first quarter of 2019

At the end of the first quarter of 2019 the funds managed by Fortress Fund Managers had achieved “consistently strong results“. This follows an encouraging start to the year.

The good news was shared with investors in the leading fund manager’s March 2019 quarterly report, released early this month. It comes against the backdrop of a move by the United States Federal Reserve to pause its rate increases implying that “global interest rates may stay lower for longer and continue to support financial markets,” the report stated.

The March quarterly report focused on three funds: the flagship Caribbean Growth Fund, the Caribbean High Interest Fund which focuses on income and capital preservation, and the Caribbean Pension Fund.

The Caribbean Growth Fund gained 5.7% in the first quarter and was up 1.1% over the past year as global stocks recovered strongly from the weakness of last year. The Net Asset Value (NAV), which is the total value of the securities the fund owns divided by the number of fund shares outstanding, finished March 29 at $6.0082. The Fund’s annual compound rate of return since its inception in 1996 has increased to 8.4% per year.

While Caribbean stocks saw mixed returns during the quarter with Jamaica and Trinidad strengthening slightly as shares in Barbados weakened, global equities rallied to start the year, helped by a more friendly interest rate and global trade backdrop than had obtained through most of 2018. “The Fund benefited from its substantial investments in the US, international and emerging markets equities via the Fortress Global Funds, with solid returns in these areas driving the Fund’s overall return for the quarter.”

With regard to Barbados, the report noted that the government’s “fiscal reforms and the aftermath of the domestic bond restructuring are likely to keep a lid on economic growth in the short-term.” It went on to add, however, that Fortress was hopeful that the steps taken would yield better prospects in the long-term to the benefit of businesses in the island.

The Caribbean High Interest Fund achieved a return of 1.5% for the first quarter though it is down 0.5% over the past year. Its annual compound rate of return since inception in 2002 is now 4.1% per year. The NAV of the Fund’s Accumulation share finished March 29 at $1.9575, while the Distribution share finished at $0.9984. During the quarter, the fund benefited from the “rallying bond market and from some of the same improvement in risk appetite that lifted stock markets.” Net assets of the Fund were $136 million, up from $131 million this time last year.

Fortress is hopeful that the recent quieting of international trade frictions will allow global economic growth to resume its prior upward trend after last year’s interruption. “If this happens, interest rate increases may eventually re-enter the picture. The average term to maturity of the Fund’s portfolio remains relatively short to limit its sensitivity to interest rate changes.”

With the Fund having had only “minimal exposure to the government of Barbados bonds prior to the default; there is consequently the potential to add exposure selectively now that the risk/reward proposition has shifted.”

Diversification: a significant strength of Fortress funds

The three classes of shares under the umbrella of the Caribbean Pension Fund rose between 1.6% and 5.1% in the first quarter of the year. This constitutes a return of between -0.6% and 1.6% over the past year. The fund manager reiterated that “proper portfolio diversification is an essential ingredient especially for very long-term pension investing, and this diversification is a significant strength of the Fortress funds.”

Despite Fortress’ expressed wish to see some changes on the taxation front, the recent Barbados budget did not announce a correction to the current double taxation of pensions. “We remain hopeful that one will be coming soon because the machinery of pensions everywhere is predicated on at least minimal tax efficiency and / or outright incentives.” The Pension Fund concentrates on capital growth, income and security over the long-term.

Fortress also reminded investors that it seeks and continues to find attractively valued areas of global and Caribbean stock markets in which to invest at prices that imply substantial future returns. “There will always be ups and downs but we are cautiously optimistic on the outlook from here,” the report concluded.

Fortress manages more than $650 million across 11 different funds with regional and global investments.